Durable-Goods Orders Surge in May

Wednesday, June 28th 2000, 12:00 am
By: News On 6

WASHINGTON (AP) — The biggest jump in demand for electronics equipment in nearly three years helped catapult orders for big-ticket manufactured goods to a surprising 6 percent increase in May.

That pushed orders to U.S. factories for durable goods — items expected to last at least three years — to a seasonally adjusted annual rate of $218.9 billion last month, the Commerce Department said Wednesday.

The advance — the largest since December — was twice as strong as the 3 percent increase many analysts were expecting. It came after a sharp 5.7 percent decline posted in April.

``The rebound in orders indicates that the economy may not be nearly as soft as the recent data may have led us to believe,'' said Joel Naroff, economist with Naroff Economic Advisors.

Over the last year, the Federal Reserve has boosted interest rates to slow the supercharged economy and keep inflation from becoming a problem. Those increases are designed to raise borrowing costs and cool demand for big-ticket items such as cars and homes.

Other recent economic data — including a rise in the nation's unemployment rate in May and lackluster retail sales — have suggested that the central bank's rate increases are working to cool the economy and its main engine, consumer spending.

But Wednesday's durable-goods report suggests ``that the consumer still has the means and the will to spend,'' said Paul Taylor, chief economist for the National Automobile Dealers Association.

So far this year, durable-goods orders are running 8.4 percent higher than for the same period a year ago. Unfilled orders rose 1 percent in May, the 10th increase in the last 11 months.

Those two numbers ``tell me that manufacturing is looking pretty strong and that a healthy level of demand is being sustained,'' said Clifford Waldman, economist with Waldman Associates.

May's big jump in total durable-goods orders was led by a 26 percent increase in orders for electronics and electrical equipment, including semiconductors, circuit boards and home appliances.

That was the largest gain since August 1997 and followed a steep 17.6 percent drop in April.

``Since roughly a third of all electronic products made in the U.S. are exported, the strong increase in orders last month was due, in part, to faster growth abroad,'' said Dave Huether, economist with the National Association of Manufacturers.

Orders for transportation equipment rose 3.5 percent in May, led by an increase in demand for cars, ships and tanks. That followed a 6.4 percent decline the month before.

Excluding the volatile transportation sector, durable-goods orders went up by a whopping 6.6 percent — the largest gain since January 1985. The transportation sector is often volatile from month to month because it includes such costly items as airplanes.

Primary metals, the category that includes steel, saw orders rise 1.1 percent in May after falling by the same amount in April.

Orders for industrial machinery, including computers and machine tools, however, fell in May by a slim 0.1 percent after posting a sizable 3.6 percent gain the month before.

Shipments of big-ticket items, a good sign of current demand, grew by a solid 2.2 percent in May following a 1 percent decline.